Asset Markets Contagion during the Global Financial Crisis (original) (raw)
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Contagion in International Stock and Currency Markets During Recent Crisis Episodes
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This paper investigates contagion across stock and currency markets of China, Eurozone, India, Japan and US during global financial crisis and Eurozone crisis. The crisis periods are selected using Markov-switching models for US and Eurozone markets. We, then, utilize the DCC-GARCH model to estimate conditional correlation among the assets and test for contagion/flight to quality effects during the crises. The results show significant contagion as well as flight to quality effects both across and within asset classes. We examine the impact of financial stress index on the correlation across markets and find that portfolio diversification benefits for equity markets may be non-existent.
Journal of Economics and Financial Analysis, 2018
This research analyzes and extends the study of contagion for BRICS emerging stock markets in the context of the last two international financial crises: the Lehman Brothers Bankruptcy Crisis and the European Sovereign Debt Crisis. We investigate changes in the relationship and the co-movements between BRICS markets in response to international shocks that are originated in advanced markets like USA and Europe. Employing data of daily stock market indices of BRICS countries, this research tests for contagion, examining the interactions and characteristics of price movements of BRICS stock markets by applying cointegration, causality and VECM/Gonzalo-Granger statistic and variance decomposition methodology on stock returns as a measure of perceived country risk. The results exhibit that both long-run and short-run relationships patterns exist between BRICS stock markets and have drastically changed during turbulent periods compared with tranquil period, pointing towards the occurrence of contagion phenomenon among BRICS markets during the last two crises. These findings also indicate that changes in the USA and the Euro Zone indices affect BRICS stock markets in the short-run, acting as a leading indicator for investing in BRICS markets. Also imply an increasing degree of global market integration, bringing major implications for portfolio diversification and policy makers.
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This study assesses the effects of the US financial and the Eurozone debt crises on a large set of frontier stock markets. Detrended Cross Correlation Analysis (DCCA) and Detrended Moving Cross Correlation Analysis (DMCA) are employed to investigate whether correlations between the crises-originating countries ts (US and Greece) and frontier stock markets increased from the calm to each crisis periods. Our results indicate that this was indeed the case and frontier markets were affected by both crises. DCCA and DMCA coefficients increased significantly for countries in Europe and also, although not so strongly, for Middle Eastern ones with the subprime crisis. In the case of the Eurozone debt crisis, the most affected countries were Slovenia, Romania, Nigeria, Kuwait, Oman and Vietnam. Evidence of contagion, using the test proposed by Guedes et al. (2018a, 2018b), is thus weaker in the case of the European debt crisis, leading to the conclusion that frontier stock markets were more affected by the US financial turmoil.
Dynamic correlation analysis of financial contagion in Asian markets in global financial turmoil
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We apply a dynamic conditional-correlation model to nine Asian daily stock-return data series from 1990 to 2003. The empirical evidence confirms a contagion effect. By analyzing the correlation-coefficient series, we identify two phases of the Asian crisis. The first shows an increase in correlation (contagion); the second shows a continued high correlation (herding). Statistical analysis of the correlation coefficients also finds a shift in variance during the crisis period, casting doubt on the benefit of international portfolio diversification. Evidence shows that international sovereign credit-rating agencies play a significant role in shaping the structure of dynamic correlations in the Asian markets.
International Journal of Economics and Financial Issues, 2013
This research examines the time-varying conditional correlations to the daily stock index returns. We use a dynamic conditional correlation (DCC) multivariate GARCH model in order to capture potential contagion effects between US and major developed and emerging stock markets during the 2007-2010 major financial crisis. Empirical results show substantial evidence of significant increase in conditional correlation or contagion as well as herding behavior during crisis periods. This result contrasts with the "no contagion" finding reached by Forbes and Rigobon (2002).
EMG Working Paper Series WP-EMG-01-2012 ‘ Global Crises and Equity Market Contagion ’
2012
Using the 2007-09 financial crisis as a laboratory, we analyze the transmission of crises to country-industry equity portfolios in 55 countries. We use a factor model to predict crisis returns, defining unexplained increases in factor loadings and residual correlations as indicative of contagion. We find statistically significant evidence of contagion from US markets and from the global financial sector, but the effects are economically small. By contrast, there has been substantial contagion from domestic equity markets to individual domestic equity portfolios, with its severity inversely related to the quality of countries’ economic fundamentals and policies. This confirms the old “wake-up call” hypothesis, with markets and investors focusing substantially more on countryspecific characteristics during the crisis. JEL No.: F3, G14, G15
The Contagion Effects of Financial Crises on Stock Markets of Developed Countries
SSRN Electronic Journal, 2000
This study makes an innovative approach, since it applies a set of diversified tests, which have not been used on a joint basis until now, in order to study the contagion effects of financial crises in the stock markets of developed countries. This is particularly important due to the fact that existing literature has so far failed to adequately address the effects of financial crisis on the stock markets of developed countries. Several empirical tests are performed on a joint basis: correlation tests, Kolmogorov-Smirnov tests; extreme value tests; and tests based on the estimation of Cointegrated Vector Autoregressive models. Significant evidence on the existence of contagion effects is provided with regards to the Asia crisis, the Russia crisis and the September 11 crisis, as was previously mentioned in literature. On the other hand, limited evidence is detected regarding the contagion effects on Brazil, Argentina and Mexico.
Dynamic correlation analysis of financial contagion: Evidence from Asian markets
We apply a dynamic conditional-correlation model to nine Asian daily stock-return data series from 1990 to 2003. The empirical evidence confirms a contagion effect. By analyzing the correlation-coefficient series, we identify two phases of the Asian crisis. The first shows an increase in correlation (contagion); the second shows a continued high correlation (herding). Statistical analysis of the correlation coefficients also finds a shift in variance during the crisis period, casting doubt on the benefit of international portfolio diversification.Evidence shows that international sovereign credit-rating agencies play a significant role in shaping the structure of dynamic correlations in the Asian markets.
Contagion Effects of the Global Financial Crisis in US and European Real Economy Sectors
Panoeconomicus, 61(3), 2014, pp. 275-288
This paper empirically investigates the contagion effects of the Global Financial Crisis (2007-2009) from the financial sector to the real economy by examining nine sectors of US and developed European region. We provide a regional analysis by testing stock market contagion on the aggregate level and the sector level, on the global level and the domestic/regional level. Results show evidence of global contagion in US and developed European aggregate stock market indices and all US sector indices, implying the limited benefits of portfolio diversification. On the other hand, most of the European regional sectors seem to be immune to the adverse effects of the crisis. Finally, all non-financial sectors of both geographical areas seem to be unaffected by their domestic financial systems. These findings have important implications for policy makers, investors and international organizations.